Appeals Court Overturns Microsoft Injunction

In what marks a significant legal victory for Microsoft Corp. today, the U.S. Court of Appeals for the District of Columbia overturned an injunction that prevented the software giant from requiring PC manufacturers using its Windows 95 operating system to also include the Internet Explorer browser.

A three-judge panel ruled 2 to 1 in favor of a reversal of a lower court
ruling and overturned the preliminary injunction that was originally issued last December by U.S. District Court Judge Thomas Penfield Jackson.

The ruling declared that a lower court had “erred procedurally” when enforcing the injunction, and also maintained that the use of a special master in the case “. . . was in effect the imposition on the parties of a surrogate judge and either a clear abuse of discretion or an exercise of wholly non-existent discretion.”

More importantly for Microsoft, the ruling supported the company’s insistence that Internet Explorer is an integrated component of the Windows 95 operating system. The U.S. Department of Justice has contested this point in its antitrust case against Microsoft by arguing that Internet Explorer also exists as a standalone product.

“We think that an ‘integrated product’ is most reasonably understood as a
product that combines functionalities (which may also be marketed
separately and operated together) in a way that offers advantages unavailable
if the functionalities are bought separately and combined by the purchaser,” the ruling read.

“[I]ntegration may be considered genuine if it is beneficial when compared to
a purchaser combination. But we do not propose that in making this inquiry
the court should embark on product design assessment. In antitrust law,
from which this whole proceeding springs, the courts have recognized the
limits of their institutional competence and have on that ground rejected
theories of ‘technological tying.'”

Microsoft officials today hailed the decision as one that reaffirms the company’s steadfast position regarding its right to innovate and integrate products with its Windows operating system.

“I think that this decision from the Court of Appeals essentially validates Microsoft’s legal strategy,” said William Neukom, Microsoft General Counsel, in a press conference announcing the ruling today. “We have always asserted respectfully that what customers want is better and better technology that’s easier to use, more powerful, and that one way to achieve that . . . is to integrate new technologies into operating systems and other products.”

Although today’s ruling is not expected to have an immediate impact on the Department of Justice case against Microsoft, industry analysts were quick to speculate that the software giant now has added ammunition for the legal proceedings scheduled to begin in September. The decision is seen as a valuable legal precedent that validates Microsoft’s integration of Explorer with Windows 98.

Neukom claimed that the court went beyond mere procedural issues in today’s ruling: “The Court of Appeals provided important substantive guidance on the antitrust law that concerns product innovation–the heart of both the government’s Windows 95 case and the government’s newer Windows 98 lawsuit. The Court of Appeals stated a practical and sensible test that integration in our products is perfectly legitimate so long as it offers some benefits to our consumers.”

Wall Street reacted favorably to the news today sending Microsoft’s (Nasdaq:MSFT) stock into record territory closing at 100 3/4.